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Before Abdul Qadeer Chaudhry and Mamoon Kazi, JJ
HAJI AHMED-Appellant
versus
ABDUL KARIM AND 4 OTHERS--Respondents
High Court Appeal No. 68 of 1986, decided on 21st January, 1987.
(a) Civil Procedure Code (V of 1908) ---
-- O. VII, R. 11(d)-Document filed with plaint can be looked into for purposes of O. VII, R. 11(d), C. P. C.
(b) Arbitration Act (V of 1940)-
Ss. 32 & 34--Civil Procedure Code (V of 1908), O. VII, R. 11 (d)-Partnership at will-Suit for dissolution of partnership and rendition of accounts--Arbitration agreement existed pursuant to which parties were obliged to refer all disputes arising from con duct of partnership business or any of provisions of partnership agreement to arbitration-Award was also given by arbitrator to which some of defendants were parties-Neither existence, effect or validity of any arbitration agreement or award was challenged in suit nor there was any prayer to set aside, amend or modify an arbitra tion agreement or award-Held, prohibition enacted in S. 32, Arbitration Act, 1940, could not be invoked where on allegations made in plaint plaintiff's right to relief was not, to any extent, dependent upon validity of alleged arbitration agreement or award -Provisions of S. 32, Arbitration Act, 1940 therefore, could not be invoked for purposes of O. VII, R. 11, C. P. C. as mere existence of arbitration agreement could not bring matter within purview of S. 32-Proper procedure to be followed by defendant would be to apply for stay of the suit under S. 34, Arbitration Act, 1940-Suit was not barred under Arbitration Act, 1940 and application filed under O. VII, R. 11, C. P. C. was misconceived in circumstances [Afaq Ahmed Ansari v. Zamir Hussain Ansari and another P L D 1955 Sind 282 dissented from].
Afaq Ahmed Ansari v. Zamir Hussain Ansari P L D 1955 Sind 282 dissented from.
B. R. Harman 8c Mohatta Ltd. v. Ghee Corporation of Pakistan Ltd., Karachi 1980 C L C 1226 and The Vanguard Fire and General Insurance Company Limited, Madras v. N. R. Sreenivasa lyer Trivandrum A I R 1963 Ker. 270 distinguished.
Tha Duraswami Naidu v. Kishtappa Naidu A I R 1958 Mad. 420 ; Lutufallah Khuda Bakhsh Khan and others v. Muhammad Sidik Sobho Bhati and others A I R 1946 Sind 117 ; Muhammad Nawaz Khan v. Alam Khan I L R 18 Cal. 414 and The Universal Life & General Insurance Co. Ltd., Lahore v. Ejaz Mahmood P L D 1978 Lah. 475 ref.
N. A. Farooqui for Appellant.
Z U. Ahmed, Arif Hussain and Shafaat Hussain for Respondents.
Dates of hearing : 9th, 15th, 16th and 20th October, 1986.
MAMOON KAZI;, J.-This appeal has arisen from an order passed by the learned Single Judge of this Court on the original side, dated 27-3-1986, rejecting the appellant's application filed under the provisions of Order VII, rule 11, C. P. C.
2. A suit filed by the respondents against the appellant for dissolu tion of partnership and rendition of accounts is pending before this Court. There was a partnership entered into by the parties which was at will and according to clause (11) of the partnership agreement, any dispute arising among the partners as to the conduct of the partnership business was to be referred to arbitration. After some time dispute arose between the partners and consequently, the respondent No. 1 filed a suit before this Court against the appellant and other partners as indicated above. During the pendency of the proceedings the appellant filed an application under the provisions of Order VII, rule 11, C. P. C., contending, that there was an arbitration agreement pursuant to which the parties were obliged to refer all disputes arising from the conduct of the partnership business or any of the provisions of the partnership agreement to arbitra tion. According to the appellant, there was also an award, dated 5-7-1979, given by the arbitrator to which some of the defendants are parties. It was, therefore, submitted that the suit filed by the respondents was barred by the provisions of the Arbitration Act, 1940 and consequently the same was hit by the provisions of Order VII, rule 11, C. P. C.. Clause (d) of Order VII, rule I1 of the C. P. C. provides "the plaint shall be rejected . . . . . (d) where the suit appears from the statement in the plaint to be barred by any law."
On the basis of this, the contention of the learned counsel for the appellant before the learned Single Judge was, that the suit was barred under the provisions of section 32 of the Arbitration Act. Section 32 of the Arbitra tion Act may also be reproduced for convenience of reference as follows :-
"32. Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration, agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act."
The learned Single Judge, however, held that section 32 of the Arbitration Act provided no legal bar to the entertaining of the plaint in the instant case and consequently dismissed the appellant's application under Order VII, rule 11, C. P. C. It is this order which has now been impugned before us.
3. Mr. Nasim Ahmed Farooqui, learned counsel for the appellant, has once again advanced the same arguments before us as were advanced by him before the learned Single Judge. While conceding that for the purposes of rejection of the plaint under clause (d), the Court could only look into the plaint itself and no other extraneous material could be considered, the learned counsel argued that a copy of the partnership agreement had been filed by the respondents alongwith the plaint in the suit, which clearly established the existence of arbitration clause therein, therefore, the Court was competent to consider the appellant's prayer.
4. As to the contention that partnership agreement could be looked into by the Court while considering the appellant's application under Order VII, rule 11, C. P. C., there was hardly any serious contest on the point, therefore, we need not enter into the controversy at all. In any case, suffice it to say, that since the partnership agreement had been filed wit the plaint, the same could be looked into for the purposes of clause (d 't of rule 11 of Order VII, C. P. C. However, the second conten tion of Mr. Nasim Ahmed Farooqui that the suit filed by the respondent No. 1 was barred under the provisions of the Arbitration Act has been vehemently opposed by Mr. Z. U. Ahmed, learned counsel for the respondents. His first contention in this connection was, that clause (11) of the partnership agreement, in the first instance, did not relate to dissolution of the partnership firm as the partnership was at will, and consequently the suit filed by the respondent No. 1 was not hit by the arbitration clause in the partnership agreement, and therefore, the same was competent. The next contention of the counsel was that in any case, the only provision in the Arbitration Act forbidding filing of suits was contained in section 32 of the Arbitration Act which did not bring within its ambit a suit for dissolution of partnership or rendition of accounts. Both the learned counsel have relied upon a number of authorities on the point but we propose to refer to only such of them which we find necessary for determination of the questions in issue.
5. A perusal of para. No. 3 of the partnership agreement indicates that the partnership is at will and any major partner cannot out of it by giving two calendar months notice to the other partners. Similarly a minor partner can also retire from the partnership business on his attaining the age of majority. The partnership agreement clearly provides that in such a case the firm would stand dissolved. The next important clause in the partnership agreement is clause (11) to which we have already referred and which provides that;
"That in the case of any difference or dispute among the partners as to the conduct of business or to any of the provisions of the indenture or any dispute arising out of these presents the same shall be referred to five arbitrators one to be nominated by each adult partner. In case of any difference or disagreement among the Arbitrators they shall appoint an Umpire and refer the dispute to him. The Umpire's award shall be final and binding upon all the parties. None of the parties to this Indenture shall be entitled to take any dispute of the partnership to any Court of Law."
A perusal of this clause clearly indicates that it is of a comprehensive nature covering within its ambit all disputes or differences which could arise among the partners during conduct of the business of the firm or in respect of any of the provisions of the partnership agreement. An exami nation of the plaint in the suit indicates that the grievance of the respon dent No. 1 relates to the manner in which the business of the firm was being conducted by the appellant and other partners. No doubt, the suit was filed for dissolution of the partnership and rendition of accounts, in respect of which there existed no arbitration agreement as contemplated by section 2(a) of the Arbitration Act, but nevertheless, the matter constitut ing cause of action in the suit squarely, falls within the ambit of clause (11) of the partnership agreement. The question however is, could the suit be barred under clause (d) of rule 11 of Order VII, C. P. C.
6. A perusal of the provisions of the Arbitration Act indicates that except for section 32 there is no provision in the Act barring filing of a suit. The first part of section 32 prohibits filing of a suit to challenge the existence, effect or validity of an arbitration agreement or award and its second part prevents the setting aside, amendment or modification of the same, otherwise than as provided in the Act. This section when read together with section 33 of the Act indicates that an arbitration agreement or an award can only be contested by an application and not by a suit. Admittedly, in the suit filed by the respondent neither the existence, effect or validity of any arbitration agreement or award has been challenged nor there is any prayer to set aside, amend or modify an arbitration agreement or award. In Tha Duraswami Naidu v. Kishtappa Naidu (A I R 1958 Mad. 420) it was held B that the prohibition enacted in section 32 of the Arbitration Act cannot be invoked where on the allegations made in the plaint the plaintiff's right to relief is not, to any extent, dependent upon the validity of the alleged arbitration agreement or award. Mr. Naseem Ahmed Farooqui has, however, argued that section 32 while read alongwith the other provi sions of the Arbitration Act would have the effect of barring a suit in respect of the subject-matter of the reference. Reliance was placed by him on the case of Afaq Ahmed Ansari v. Zamir Hussain Ansari and another (P L D 1955 Sind 282), B. R. Harman and Mohatta Ltd. v. Ghee Corporation of Pakistan Ltd., Karachi (1980 C L C 1226) and The Vanguard Fire and General Insurance Company Limited, Madras v. N. R. Sreenivasa lyer Trivandrum (A I R 1963 Ker. 270). 1n the first case, a dispute arose between the partners of a firm as a result of which the parties decided to terminate the partnership. The dispute was then referred to the arbitrator who consequently gave an award. .Despite the award the plaintiff filed a suit for declaration that the partnership between the plaintiff and the defendants stood dissolved and also for taking of accounts. The defendant in the suit filed an application under Order VII, rule 11, C. P. C. for rejection of the plaint on the ground that the suit was barred under the provisions of the Arbitration Act. It was observed as follows :-
"On a clear reading of section 32 of the Arbitration Act of 1940, it cannot be argued or contended that the effect of the present suit is not to circumvent the provisions of the Arbitration Act and to avoid the award that has been made. The only remedy that is open to the plaintiff is to pursue his remedy which he has already started in the Lahore Court. Once an award has been made, the disputes between the parties relating to the subject-matter of the reference are merged in the award and no suit can lie which can have the effect of avoiding the award except under the provisions of the Arbitration Act of 1940."
In the case of B. R. Harman & Mohatfa Ltd., there was an arbitration agreement between the parties to the suit which read as under :-
"18.-(a) Any disagreement, dispute or claim which may arise from this agreement or in connection with it, in the first instance, may be sorted out mutually by the parties. In case, any disagreement, dispute or claim could not be resolved mutually by the parties, the dispute shall be referred to the Board of Directors of the Pur chasers whose decision shall be final and binding on the party subject to arbitration as provided in this para.--------Reference of any dispute to the Board of Directors of the Purchasers shall be a condition precedent to any other action at law. Such disagreement, dispute or claim shall be settled through an arbitration in accordance with the Arbitration Act of 1940."
On a suit being filed by the plaintiff, a plea was raised by the defendant that the suit was barred under section 28 of the Contract Act. It was held by the Court as under :-
"A perusal of the agreement clearly shows that the parties contemp lated that before going to arbitration the party dissatisfied should first approach the Board of Directors of the defendants for redress of his grievance for it is possible that it may be redressed by them, thus obviating the necessity of even going to arbitration or to Court. But this course, if followed, would not close the doors of arbitra tion or of Court, for if the plaintiff is dissatisfied with decision he could still go to arbitration or under certain conditions come to Court.
Since the condition precedent mentioned in the arbitration clause has not been fulfilled, I am therefore, of the view that the suit is premature and not maintainable. I, therefore, dismiss it leaving the parties to bear their own costs."
In the Kerala case also, the circumstances of the case were more or less similar. It was held that :-
"It is now settled by authorities that if the making of an award is a condition precedent for the accrual of a cause of action to the plaintiff, then that condition has to be satisfied before the plaintiff can acquire a cause of action ; and if a suit is instituted before that, it is a good defence to the maintainability of the action itself. A distinction has always been made between cases where the arbitration and the award are made conditions precedent to the right of action itself and where they are merely collateral to the main agreement. In the latter case if a suit is instituted in violation of the collateral agreement, the only consequence is that the suit will be liable to be stayed at the instance of the defendant under section 34 of the Arbitration Act."
7. It appears that the learned Judge who gave the decision in the case of Afaq Ahmed Ansari was influenced by the observations made in Lutujallah Khuda Bakhsh Khan and others v. Muhammad Sidik Sobho Phati and others (A I R 1946 Sind 117) and Muhammad Nawaz Khan v. Alam khan (I L R 18 Cal. 414) as reference has been made by him to these judgments. In the first case, a suit was file by the plaintiff against the defendant for specific performance of a contract for sale to him of immovable property and in the alternative for return of the earnest money. The defendant pleaded that the suit was barred as the matter had been referred to arbitration and an award had been duly made. On the basis of these facts the two eminent Judges of the erstwhile Sind Chief Court who constituted the D. B. made the follow ing observations :-
"A valid award operates to merge and extinguish all claims embraced in the submission and award furnish the only basis by which the rights of the parties can be determined, and constitute a bar or any action on the original demand."
In the Privy Council case also, there was an award in existence on the basis of which the Privy Council came to the conclusion that the subject-matter of the award and the suit being the same the suit would be barred by the principles of res judicata. It is noteworthy that in both these cases, the decisions did not turn in favour of the defendant on the basis of section 32 of the Arbitration Act, but because there was an award in respect of the subject-matter of the suit filed by the plaintiff on the basis of which the defendants set up a defence that there being an award given by the arbitrator, the suit which was in respect of the same subject-matter, was barred ; but in both the cases, section 32 was not considered at all. However, the learned Single Judge, who decided the case of Afaq Ahmed Ansari has gone to the extent of holding that the suit filed during the existence of award would be barred under section 32 of the Arbitration Act. In the cases of B. R. Harman & Mohatta Ltd. and The Vanguard Fire and General Insurance Company Ltd., the cause of action could arise to the plaintiffs only when there was an award given by the arbitrator. The two cases are, therefore, clearly distinguishable. The case of Afaq Ahmed Ansari, although supports the appellant's case to some extent, but the learned Judge who wrote the judgment, it seems, has proceeded on the premise that to allow the plaintiff to proceed with the suit would tanta mount to allowing him to avoid the award. On the basis of this he held that the bar contained in section 32 of the Arbitration Act extended td such suits. We may say with utmost respect, that we are unable to subs cribe to this view for the simple reason that no such intention can be spelled out from the language used by the Legislature in section 32 of the Arbitration Act. 1f such was the intention, nothing prevented the Legislature from expressing itself in clear and unambiguous terms. We: are, therefore, clearly of the view that the appellant in this case cannot invoke section 32 of the Arbitration Act for the purposes of Order VII, rule 11, C. P. C. as mere existence of arbitration agreement cannot bring the matter within the purview of section 32. However, in such a case, the proper procedure to be followed by the defendant would be to apply for stay of the suit under section 34 of the Arbitration Act. We are further fortified in our view by the case of The Universal Life and General Insurance Co. Ltd., Lahore v. Ejaz Mahmood (P L D 1978 Lab. 475) wherein it was unequivocally held that although an agreement to refer existing or future disputes to arbitration does not oust the jurisdiction of the Courts to enter tain a suit relating to such disputes, but the same permits the defendant told apply under section 34 of the Arbitration Act to stay the suit so as to) enable the parties to obtain reference to arbitrators.
8. We are, therefore, clearly of the view that the suit filed by the respondent No. 1 is not barred under the provisions of the Arbitration Act and the application filed by the appellant under the provisions of Order VII, rule 11, C. P. C. was clearly misconceived and consequently, the same was rightly dismissed by the learned Single Judge. We, therefore, find no reason to interfere with the order passed by the learned Single Judge and dismiss this appeal.
M. B. A./H-2/K Appeal dismissed.
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